(Disclaimer: the following post comes free of charge, so you get what you pay for :)
I just retweeted Bill Gurley’s blog post about “free” business models.
Bill brings up a number of excellent points. I liked this one the best:
The key question for anyone in business is, “Can someone do what you do for free?”. If the answer is “yes” you have a problem.
This touches the big issue for me. Free is so interesting & powerful because it’s possible to create enormous value at a low cost.
Here’s a reasonable example:
CNBC vs Seeking Alpha.
It’s true, CNBC’s traffic is marginally higher than Seeking Alpha. Yet I’m quite sure the costs to run Seeking Alpha is substantially lower than CNBC.
With all due respect, I never check out CNBC on cable or online. I get my financial news from Seeking Alpha, blogs and Twitter.
What will this chart look like 1,2 & 5 years from now. I can’t predict but something tells me the open web will deliver the goods here vs closed world of broadcast television.
So, CNBC may lose analog dollars but digital dimes are important. They are the future.
We need to figure out how to build more successful digital dimes companies. We must realize that the train has the left the station for many businesses in the analog dollars business.
Why? Because it’s possible to compete with those businesses with a free model since the operational costs are significantly lower. And digital dimes companies can be great top line & great bottom line (google) as well as medium top line and great bottom line (craigslist).
Another example, your wireless phone company can’t charge $1.50 for directory assistance. It’s going to be free. Either from a startup or Google or the open web. The cost of human directory assistance and that “old” revenue model & profit is an endangered species.
Bill brings up another point. Not everything needs to go free. Bill cites HBO and the WSJ’s successful subscription models. Bill further suggests the NYT goes the same route. There are plenty of other successful online subscription examples such as MLB.TV, Netflix, WoW, Xbox Live, the list goes on.
We shouldn’t limit ourselves to a tired, old debate that there are only two choices of making money: ad supported (page views) vs subscription.
There are new, proven models that are generating real revenue and real profits in virtual goods & micropayments amongst others.
I like Bill’s post a lot. As he points out there isn’t one way to do this. It is not simply a black and white issue.
The color part brings huge opportunity.